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Chapter 6: Consumers
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Chapter Six:Consumers
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Product SafetyBusinesss general responsibility for product
safety: The complexity of an advanced economy
and the necessary dependence of consumers onbusiness to satisfy their many wants increase
businesss responsibility for product safety.
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Product SafetyThe legal liability of manufacturers: The 1916
MacPherson vs. Buick Motor Car case expandedthe liability of manufacturers for injuries caused
by defective products.
Prior to that case, consumers could recoverdamages only from the retailer of the defectiveproduct.
TheMacPherson case replaced the oldercaveatemptor(let the buyer beware) doctrine ofconsumer-seller relationship with adue care one.
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Product SafetyStrict product liability: TheMacPherson case still
left the injured consumer with the burden of
proving that the manufacturer had been negligent.Negligence is difficult to prove.
A product might be unsafe despite the
manufacturers having tried to exercise caution.
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Product SafetyStrict product liability: In the 1960s, legal thinking
became dominated by the doctrine of strictproduct liability, based on:
Henningsen vs. Bloomfield Motors (1960).
Greenman vs. Yuba Power Products (1963).
This holds the manufacturer responsible forinjuries suffered as a result of defects in theproduct, regardless of whether the manufacturerwas negligent.
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Product SafetyGovernment safety regulation: In 1972, Congress
passed the Consumer Product Safety Act.
It empowered the Consumer Product SafetyCommission (CPSC) to protect the public againstunreasonable risks of injury associated withconsumer products.
The CPSC aids consumers in evaluating productsafety, develops uniform standards, gathers data,conducts research, and coordinates product safetylaws (local, state, federal) and enforcement.
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Product SafetyEconomic costs: Safety regulations benefit
consumers but raise the price of productscritics
worry that the expense is not always worth it.Consumer choice: Consumers may dislike some
mandated safety technologybut in other cases
safety regulations may prevent individuals from
choosing to purchase a riskier, though lessexpensive, product.
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Product Safety Legal paternalism: The idea that the law may
justifiably be used to restrict the freedom ofindividuals for their own good.
(1)Some product safety affects not just consumerswho purchase products but also third parties.
(2)In the increasingly complex consumer world, theassumption that consumers know their owninterests better than anyone else is doubtful.
(3)Paternalistic regulation may infringe individualautonomy but bring more gain in social welfare.
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Product SafetyHow effective is regulation? Regulatory agencies
(FDA, CPSC) often succeed in protecting interests
of consumers and stressing business responsibility.Regulation, however, is not always effective.
Public opinion, media attention, pressure from
consumer advocacy groups, and the prospect of
class-action lawsuits are also effective in forcing
companies to take product safety seriously.
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Product SafetySelf-regulation: Businesses generally prefer self-
regulation, competition, and voluntary safety
standards set by their own industry.But self-regulation can easily subordinate
consumer interests to profit making when the two
goals clash.
Under the guise of self-regulation, businesses can
end up ignoring or minimizing their
responsibilities to consumers.Business Ethics
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Product Safety Automobile safety: The auto industry has a long
and consistent history of fighting against safetyregulations. Some examples:
(1) The industry successfully lobbied the federalgovernment to delay the requirement that cars beequipped with air bags or automatic seat belts.
(2) In the late 1990s, the industry denied that carpassengers are at a greater risk of serious injuryor death caused by collisions with pickups orSUVS than with automobiles.
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The Responsibilities of Business
Protecting the consumer requires more than justobeying the law.It also requires business to:
(1) Give safety the priority warranted by theproduct.
(2) Abandon the misconception that accidents resultsolely from consumer misuse.
(3) Monitor closely the manufacturing process itself.
(4) Review the safety implications of their marketingand advertising strategies.
(5) Provide full details about product performance.
(6) Promptly investigate consumer complaints.Business Ethics
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The Responsibilities of BusinessSome businesses respond quickly to suspected
hazards. Examples of two successful companies:
JCPenney and Burning Radios: It withdrew anentire line of defective radios, ran national ads toinform the public, and offered immediate refunds.
Johnson Wax and Fluorocarbons: It withdrew allits aerosol fluorocarbon products worldwide afterstudies showed the released chemicals weredepleting the earths fragile ozone layer.
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Other Areas of Business Responsibility
Product quality: Warranties are obligations forproduct quality and reliability that sellersassume.
There are two kinds of warranty:(1) Express: The claim that a seller explicitly states.
(2) Implicit: The claim, implicit in any sale, that aproduct is fit for its ordinary, intended use, called
the implied warranty ofmerchantability
its nota promise that the product will be perfect but aguarantee that it will be of passable quality.
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Other Areas of Business ResponsibilityPricing: For many consumers, higher prices mean
better products, so sellers raise prices to give the
impression of superior quality or exclusivitybuthigher prices do not always mean better quality.
Manipulative pricing: Consumers are misled by
prices that conceal a products true cost this
trickery or manipulation raises moral questionsabout businesss view of itself and its role in the
community.
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Other Areas of Business Responsibility Price fixing: The effort to control a given market
and conspire to force consumers to payartificially high prices. There are two kinds of
price fixing:(1) Horizontal: Occurs when competitors agree to
adhere to a set price schedule (not to cut pricesbelow a certain minimum, or to restrict priceadvertising or the terms of sales or discounts).
(2) Vertical: Takes place when manufactures andretailers, as opposed to direct competitors, agreeto set prices.
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Other Areas of Business ResponsibilityPrice gouging: A sellers exploitation of a short-
term situation by raising prices when buyers havefew purchase options for a much-needed product.
Thought generally viewed as unethical, there isdisagreement about what it is and whether allinstances of it are wrong.
The question What is a fair price? is not an easyone to answerone must consider the costs ofmaterial and production, operating and marketingexpenses, profit margin, etc.
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Other Areas of Business ResponsibilityLabeling and packaging: Business is responsible to
provide accurate, clear, and understandable
product information that meets consumer needs.Product labels often fail to do this.
Package shape, terms, and quantity surcharges may also
mislead shoppers.
Moral conduct begins by providing consumerswith what they need to know to make informed
product choices.
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Deception and Unfairness in AdvertisingThe goal of advertising: Advertising provides little
useful information about goods and services, but
has as its goal to persuade us to buy certain ones.Deceptive techniques: Providing frank product
information is not always the most effective way to
sell somethingadvertisers are tempted to
misrepresent and deceive by exploiting ambiguity,concealing facts, exaggerating, and using
psychological appeals.
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Deception and Unfairness in AdvertisingThe Federal Trade Commissions (FTC) role:
Created in 1914 as an antitrust weapon, it was
expanded to include protecting consumers againstdeceptive advertising and fraudulent practices.
Is the FTC (or other regulatory bodies) obligated
to protect only reasonable, intelligent consumers
who act sensibly in the marketplace?Or should it also protect ignorant consumers who
are careless or gullible in their purchases?Business Ethics
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Deception and Unfairness in AdvertisingThe Federal Trade Commissions (FTC) role:
Should the FTC use thereasonable-consumerstandard or the ignorant-consumer standard?
Adopting theformer would entail protecting onlyreasonable people from deceptive advertisingifso, gullible consumers would be unprotected.
Adopting the latter would mean prohibitingadvertisements that can deceive anyoneif so, theFTCs restrictions and caseload would expand.
It now follows a modified ignorant-consumer rule.Business Ethics
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Deception and Unfairness in AdvertisingAdvertising to children: Children are particularly
susceptible to the exaggerations of advertising.
Advertisers say that parents still control what gets
purchased and what doesnt.
Critics doubt the fairness of selling to parents byappealing to children.
Childhood obesity: The Institute of Medicines
2005 report, reviewing 123 research studies over 30years, showed that exposure to TV ads isassociated with obesity in children under twelve.
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